How Do Canadian Miners Correlate to the Price of Gold?


Jul. 28 2016, Published 10:59 a.m. ET

Canadian miners

The precious metal market has skyrocketed in 2016. Despite this trend, it’s crucial for investors to know which mining stocks are overperforming or underperforming their peers to short-list the upstream and downstream stocks. In this article, we’ll mainly study the precious metal miners in Canada and their correlation to gold. Miners that have strong correlations to gold include Agnico Eagle Mines (AEM), Silver Wheaton (SLW), and Franco-Nevada (FNV).

On a YTD (year-to-date) basis, these stocks have risen 100.6%, 107.8%, and 59.7%, respectively. However, Primero Mining (PPP) fallen 4.8% YTD. The substantial returns for most miners are due to the same safe-haven bids that boosted gold and other precious metals.

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Correlation trends

As you can see in the above table, Agnico Eagle Mines is the most correlated with gold among the four stocks on a YTD basis. Primero Mining is the least correlated to gold. Its weak correlation is evident in the negative price movement it has faced.

Franco-Nevada has seen its correlation to gold rise. The company’s correlation rose from a 58.5% three-year correlation to a 62.8% one-year correlation. A correlation of 62.8% suggests that about 63% of the time, Franco-Nevada changed in the same direction as gold over the past year. A fall in gold leads to a drop in the price of mining shares, and a rise in gold leads to a rise in mining stocks.

The relationships of the other three miners with gold haven’t been stable over the past three years. The correlation has seen upward and downward movements.

Together, these four stocks make up 15.4% of the VanEck Vectors Gold Miners ETF (GDX).


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